Germany announced a budget on Tuesday that would increase its military spending to 3.5 percent of its economic output by 2026 and expand funding to improve its crumbling infrastructure, as part of an investment push aimed at kick-starting the country’s sluggish economy.
The proposed spending plan was presented hours before members of the North Atlantic Treaty Organization gathered in The Hague for a meeting during which they are expected to support a resolution to raise military spending to 5 percent of their gross domestic product.
For decades, Germany, Europe’s largest economy, has failed to invest in its public infrastructure and has lagged behind other NATO member countries on military spending. But amid pressure from President Trump and a growing concern among Western Europeans of the threat posed by Russia, Germany is reversing course.
“What we are doing here is a paradigm shift in investment policy,” Lars Klingbeil, the country’s finance minister, told reporters in presenting the draft budget in Berlin on Tuesday.
The budget relies heavily on borrowing to pay for investments this year worth 115.7 billion euros, or $134 billion, of which €62.4 billion is earmarked for military spending.
Under the framework, Germany’s funding for its military will increase to at least 3.5 percent of its gross domestic product by 2026. It will continue to raise spending through 2029, which will be needed if it is to reach the proposed 5 percent NATO benchmark, which Mr. Trump has demanded members meet.
The proposals were approved by the cabinet of Chancellor Friedrich Merz, but they have come under criticism for what some German lawmakers and representatives from opposing parties see as excessive borrowing.
But Mr. Klingbeil defended the moves as necessary if Germany and its army, the Bundeswehr, were to remain competitive.
“It’s about the future viability of the country and we won’t have won a single prize if we say in 20 years’ time that we have complied with all the rules that may have existed at some point, but the schools are still broken, the Bundeswehr can’t defend us and the bridges no longer support us,” he said.
The proposal still needs to pass in the German Parliament, which is expected to vote on it in September.
The increase in borrowing will result in interest payments doubling over the next four years, a clear departure in a country that a decade ago enshrined the need for a balanced budget into its Constitution. Disputes over whether to allow for more borrowing caused the collapse of the previous government of Chancellor Olaf Scholz.
In March, Mr. Merz rushed a law through Parliament that loosened the limits on military spending above 1 percent of the nation’s gross domestic product. The law also exempted investments on intelligence and information security from the limits. Mr. Merz also agreed to create a new fund worth €500 billion — almost $550 billion — to spend on infrastructure over 12 years.
The German economy has failed to grow over the past two years and businesses have been looking to Mr. Merz’s government to cut energy costs and red tape for new investments, as well as provide incentives for companies to spend more.
Since Mr. Merz took office in early May, surveys have shown that businesses are more optimistic and economists have forecast a return to annual growth of at least 1 percent by next year, at the latest.
But spending alone will not ensure the health of the German economy over the long-term, said Salomon Fiedler, an economist at Berenberg, a private bank in Hamburg.
“In the long run, the government of Chancellor Friedrich Merz will need to pass further significant reforms,” Mr. Fiedler said, citing tax changes as an example. “Otherwise, structural problems could once again weigh heavily on the growth outlook once the fiscal boost has run its course.”
Melissa Eddy is based in Berlin and reports on Germany’s politics, businesses and its economy.
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